February 29, 2012
`
`The Honorable Kimberly D. Bose
`Secretary
`Federal Energy Regulatory Commission
`888 First Street, N.E.
`Washington, D.C. 20426
`
`Re:
`
`Southwest Power Pool, Inc., Docket No. ER12-____-000
`Submission of Tariff Revisions to Implement SPP Integrated Marketplace
`
`Pursuant to section 205 of the Federal Power Act (“FPA”), 16 U.S.C. § 824d, and
`Part 35 of
`the Regulations of
`the Federal Energy Regulatory Commission
`(“Commission”), 18 C.F.R. Part 35, Southwest Power Pool, Inc. (“SPP”), as authorized
`by its Board of Directors, submits revisions to its Open Access Transmission Tariff 1 to
`implement the SPP Integrated Marketplace. SPP requests an effective date of March 1,
`2014 for the Tariff revisions submitted in this filing, and requests that the Commission
`issue an order on this filing by July 31, 2012, as discussed in more detail below.
`
`I.
`
`EXECUTIVE SUMMARY
`
`Since its inception as a power pool tasked with providing continuous reliable
`power to manufacturers essential to national defense in the early days of World War II,
`SPP has continuously strived to develop services that provide increasing regional benefits
`to owners, operators, and users of the bulk electric system in the eight state SPP Region.
`As part of this process, SPP’s functional roles have progressively expanded, with early
`transmission administration responsibilities evolving into much broader responsibilities
`as a Commission-approved Regional Transmission Organization (“RTO”). More
`recently, SPP successfully implemented, and currently operates, a Real-Time Energy
`Imbalance Service (“EIS”) Market. This filing marks the next step in SPP’s Strategic
`Plan to provide regional benefits to stakeholders – the SPP Integrated Marketplace.
`
`The Integrated Marketplace proposal represents the culmination of several years
`of intense SPP stakeholder efforts to develop a comprehensive market design for the SPP
`
`Southwest Power Pool, FERC Electric Tariff, Sixth Revised Volume No. 1
`1
`(“Tariff”). Italicized language in the Tariff represents language that is pending
`before the Commission in other dockets.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 2
`
`Region. As proposed, the Integrated Marketplace includes Day-Ahead and Real-Time
`Energy and Operating Reserve Markets and Transmission Congestion Rights markets
`aimed at maximizing the cost-effective utilization of Energy Resources and the regional
`Transmission System.2 The SPP Integrated Marketplace co-optimizes the deployment of
`Energy and Operating Reserve to achieve lowest-cost Resource utilization, resulting in
`estimated net benefits of between $45 and $100 million per year.
`
`SPP and its stakeholders engaged in a pragmatic approach to developing the
`Integrated Marketplace, carefully reviewing the Commission-approved market designs of
`other RTOs to identify effective market design elements and avoid the pitfalls that other
`RTOs encountered in designing their markets. To the extent possible, SPP has
`endeavored to model its Integrated Marketplace elements on those successfully operating
`in other RTO markets, modified as necessary to address regional differences and SPP
`stakeholder needs. Through the active involvement of SPP’s stakeholder community,
`including the SPP Regional State Committee (“RSC”), SPP has developed its Integrated
`Marketplace to provide lower overall costs for wholesale power in the SPP Region while
`expanding economic opportunity for both existing and new Market Participants.
`
`As discussed in more detail below, SPP anticipates commencing operation of the
`Integrated Marketplace on March 1, 2014. SPP is submitting this filing two years in
`advance of the Integrated Marketplace launch to ensure adequate time for Commission
`approval prior to the final development of the necessary systems and software to operate
`the Integrated Marketplace. Additionally, because some Market Participants must obtain
`state regulatory approval to participate in the Integrated Marketplace, SPP submits this
`filing to provide ample time for state commissions to examine the final Integrated
`Marketplace design, as approved by the Commission, in reviewing Market Participant
`requests for approval to participate. Accordingly, SPP requests that the Commission
`issue an order on this filing by July 31, 2012, with the goal of obtaining final approval of
`the market rules for the Integrated Marketplace, following any necessary compliance
`filings, by the end of 2012.
`
`As demonstrated below and in the accompanying Tariff language, direct
`testimony, and exhibits, Commission approval of SPP’s Integrated Marketplace is just
`and reasonable and serves the public interest by facilitating more efficient and cost-
`effective utilization of Resources and transmission facilities in the SPP Region. For the
`reasons discussed in this filing, the Commission should approve the proposed Tariff
`revisions as just and reasonable, and conditionally approve the Integrated Marketplace to
`commence on March 1, 2014, conditioned as necessary upon SPP’s submission of
`additional filings described in this letter.
`
`
`If not defined in this letter, capitalized terms in this letter have meanings ascribed
`2
`to them in the SPP Tariff as submitted in this filing.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 3
`
`II.
`
`BACKGROUND
`
`A.
`
`SPP
`
`SPP is a Commission-approved RTO. It is an Arkansas non-profit corporation
`with its principal place of business in Little Rock, Arkansas. SPP currently has 65
`Members serving more than 6 million households in a 370,000 square-mile area. Its
`Members include 14 investor-owned utilities, 11 municipal systems, 12 generation and
`transmission cooperatives, 4 state agencies, 7 independent power producers, 10 power
`marketers, and 7 independent transmission companies. As an RTO, SPP administers
`open access Transmission Service over approximately 48,930 miles of transmission lines
`covering portions of Arkansas, Kansas, Louisiana, Missouri, Nebraska, New Mexico,
`Oklahoma, and Texas, across the facilities of the SPP Transmission Owners.3
`
`Additionally, since February 1, 2007, SPP has administered the centralized Real-
`Time EIS Market,4 which is governed by Attachment AE of the SPP Tariff.
`
`B.
`
`Summary and Description of Testimony
`
`Accompanying this filing, SPP provides supporting testimony from several
`witnesses. Mr. Carl A. Monroe, SPP Executive Vice President and Chief Operating
`Officer, provides an overview of the Integrated Marketplace design and an explanation of
`SPP’s process for determining appropriate markets and design.5 Mr. Richard L. Dillon,
`SPP Director of Market Design, offers detailed testimony providing the technical basis
`for specific features of the Integrated Marketplace design.6 Mr. Thomas P. Dunn, SPP
`Vice President and Chief Financial Officer, provides testimony addressing revisions to
`SPP’s Credit Policy to accommodate the Integrated Marketplace.7 Finally, Dr. John
`Hyatt, Ph.D., Supervisor of SPP’s Independent Market Monitoring Unit (“Market
`
`
`See Sw. Power Pool, Inc., 89 FERC ¶ 61,084 (1999); Sw. Power Pool, Inc., 86
`3
`FERC ¶ 61,090 (1999); Sw. Power Pool, Inc., 82 FERC ¶ 61,267, order on reh’g,
`85 FERC ¶ 61,031 (1998).
`
`4
`
`5
`
`6
`
`7
`
`Sw. Power Pool, Inc., 118 FERC ¶ 61,055 (2007) (accepting SPP’s Market
`Readiness Certification and authorizing a February 1, 2007 start date for the EIS
`Market).
`
`Exhibit No. SPP-1.
`
`Exhibit No. SPP-3.
`
`Exhibit No. SPP-4.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 4
`
`Monitor”), testifies regarding SPP’s Market Power Study and the Market Monitor’s
`recommendations to address Market Power issues in the Integrated Marketplace.8
`
`C.
`
`Stakeholder Approval
`
`As discussed in more detail in the Testimony of Mr. Monroe, SPP engaged in a
`multi-year stakeholder process to develop the Integrated Marketplace,9 beginning with
`the launch of the EIS Market and culminating with this filing.
`
`
`The SPP Market Working Group (“MWG”)10 developed the market protocols
`governing the Integrated Marketplace, which were approved by the SPP Markets and
`Operations Policy Committee (“MOPC”)11 in October of 2010, followed by approval by
`the SPP Board of Directors in January of 2011. The SPP Joint Markets Tariff Task Force
`(“JMTTF”)12 developed the Tariff language for the Integrated Marketplace based on the
`protocols, approving the Tariff language on August 25, 2011. The SPP Regional Tariff
`Working Group (“RTWG”)13 made further refinements and unanimously approved the
`Tariff revisions on November 18, 2011, subsequently approving additional minor Tariff
`revisions on January 5, 2012 and January 26, 2012.
`
`
`Exhibit No. SPP-5.
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`Exhibit No. SPP-1 at 7-11.
`
`The MWG is responsible for the development and coordination of the changes
`necessary to support any SPP administered wholesale market(s), including
`Energy, congestion management, and market monitoring, consistent with
`direction from the SPP Board of Directors.
`
`The MOPC consists of a representative officer or employee from each SPP
`Member and reports to the SPP Board of Directors. Its responsibilities include
`recommending modifications to the SPP Tariff. See Southwest Power Pool, Inc.,
`Bylaws, First Revised Volume No. 4 (“Bylaws”) § 6.1.
`
`The JMTTF was an ad hoc task force created to translate the Integrated
`Marketplace Protocols into Tariff language. The JMTTF consisted of the chairs
`and senior members of the MWG and the SPP Regional Tariff Working Group.
`Exhibit No. SPP-1 at 9.
`
`recommendation, overall
`for development,
`responsible
`is
`The RTWG
`implementation, and oversight of SPP’s Tariff. The RTWG also advises SPP staff
`on regulatory and implementation issues not specifically covered by the Tariff or
`issues where there may be conflicts or differing interpretations of the Tariff.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 5
`
`On December 6, 2011, the MOPC overwhelmingly approved the proposed Tariff
`language, approving the additional minor revisions on January 17, 2012. On January 31,
`2012, the SPP Members Committee14 voted in favor of, and the SPP Board of Directors
`approved, the Integrated Marketplace Tariff revisions submitted in this filing. While SPP
`recognizes that stakeholder approval does not by itself cause a filing to be just and
`reasonable, SPP requests that the Commission extend appropriate deference to the wishes
`of its stakeholders regarding the Tariff modifications proposed in this filing, consistent
`with Commission precedent.15
`
`III.
`
`OVERVIEW OF THE INTEGRATED MARKETPLACE
`
`The SPP Integrated Marketplace includes the following elements:
`
`(1)
`(2)
`
`(3)
`
`(4)
`(5)
`
`Day-Ahead Energy and Operating Reserve Market;
`Day-Ahead and Intra-Day Reliability Unit Commitment (“RUC”)
`Processes;
`Real-Time Balancing Market (“RTBM”), which will replace the current
`EIS Market;
`Price-based Operating Reserve procurement co-optimized with Energy;
`Market for Transmission Congestion Rights (“TCR”) including Auction
`Revenue Rights (“ARR”);
`
`
`The Members Committee consists of up to 19 representatives of the Transmission
`14
`Owning Member and Transmission Using Member sectors of SPP’s Membership.
`This committee provides input to and assists the SPP Board of Directors with the
`management and direction of the general business of SPP. See Bylaws § 5.1.
`
`15
`
`The Commission previously has recognized that provisions approved through the
`stakeholder processes of RTOs are due deference. See Sw. Power Pool, Inc., 127
`FERC ¶ 61,283, at P 33 (2009) (noting that the Commission “accord[s] an
`appropriate degree of deference to RTO stakeholder processes”); New England
`Power Pool, 105 FERC ¶ 61,300, at P 34 (2003), reh’g denied, 109 FERC
`¶ 61,252 (2004) (Commission approval of transmission cost allocation proposal
`based upon an extensive and thorough stakeholder process); Policy Statement
`Regarding Regional Transmission Groups, 1991-1996 FERC Stats. & Regs.,
`Regs. Preambles ¶ 30,976, at 30,872 (1993) (the Commission will afford an
`appropriate degree of deference to the stakeholder approval process). The
`Commission’s deference to RTO stakeholder processes has been upheld by the
`courts. See Pub. Serv. Comm’n of Wis. v. FERC, 545 F.3d 1058, 1062-63 (D.C.
`Cir. 2008) (noting that the Commission often gives weight to RTO proposals that
`reflect the position of the majority of the RTO’s stakeholders) (quoting Am. Elec.
`Power Serv. Corp. v. Midwest Indep. Transmission Sys. Operator, Inc., 122
`FERC ¶ 61,083, at P 172, reh’g denied, 125 FERC ¶ 61,341 (2008)).
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 6
`
`(6)
`
`(7)
`
`Consolidation of 16 current Balancing Authorities in the SPP footprint
`into a single Balancing Authority operated by SPP; and
`Multi-Day Reliability Assessment performed prior to the Day-Ahead
`Market to manage the commitment of long-start Resources.
`
`In the Integrated Marketplace, SPP will function as the Reliability Coordinator,
`Balancing Authority, Transmission Service Provider, Planning Coordinator, Reserve
`Sharing Group Administrator, Interchange Authority, and Market Operator.16
`
`As discussed in Mr. Monroe’s testimony,17 SPP’s members defined several
`objectives for the design of the Integrated Marketplace, including: (1) increase savings to
`Market Participants by moving from self-commitment to centralized unit commitment;
`(2) create a Day-Ahead Market that provides price assurance capability for serving load
`prior to Real-Time; (3) accommodate TCRs; and (4) establish a market that
`accommodates price-based procurement of Operating Reserve to support the formation of
`a single Balancing Authority (through the consolidation of the 16 existing Balancing
`Authorities) and facilitates reserve sharing.
`
`In the Integrated Marketplace, SPP will evaluate Offers and Bids submitted by
`Market Participants in the Day-Ahead Market and Offers submitted in the Day-Ahead
`RUC to ensure that sufficient Resources are committed to meet the projected load and
`Operating Reserve requirements for the upcoming Operating Day, using security
`constrained unit commitment (“SCUC”) to commit Resources on a least-cost security
`constrained basis.18 SPP will also perform an Intra-Day RUC to ensure sufficient
`Resources are committed to meet the projected load and Operating Reserve requirements
`throughout the Operating Day.19 In the RTBM, SPP will dispatch Energy and clear
`Operating Reserve on the basis of security constrained economic dispatch (“SCED”).20
`SPP will also determine annual and monthly ARR allocations and conduct annual,
`monthly, and seasonal TCR auctions.21
`
`
`See Proposed Tariff at Attachment AE § 3.1
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`Exhibit No. SPP-1 at 8.
`
`See Proposed Tariff at Attachment AE § 3.3.
`
`See id. § 3.3.
`
`See id.
`
`See id.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 7
`
`As Mr. Monroe explains, implementing the Integrated Marketplace will enable
`SPP stakeholders to take better advantage of the SPP Region’s diverse Resources.22 The
`Day-Ahead Market will co-optimize Energy and Operating Reserve to determine which
`Resources should be used to meet Bid-in demand and Operating Reserve requirements
`based on submitted Offer and Bid prices, reducing overall costs to the region.23 The
`adoption of a centralized Energy and Operating Reserve Market will also allow SPP to
`balance supply and demand and share Operating Reserve on a region-wide basis, further
`reducing costs and facilitating the reliable integration of Variable Energy Resources
`(“VER”).24
`
`In developing the Integrated Marketplace, SPP has conducted an extensive review
`of other RTO Day-Ahead and Real-Time Energy, Operating Reserve, and Transmission
`Congestion Rights markets, in an attempt to identify best practices and incorporate
`lessons learned. In general, SPP’s Integrated Marketplace design is substantially similar
`to the Commission-approved markets operated by other RTOs, particularly the Midwest
`Independent Transmission System Operator, Inc. (“MISO”) and PJM Interconnection,
`L.L.C. (“PJM”). Variations, to the extent they exist, are designed to reflect regional
`differences or to accommodate SPP stakeholder preferences, as discussed in this
`transmittal letter and in the Testimony of Mr. Dillon.
`
`IV.
`
`COMPONENTS OF THE INTEGRATED MARKETPLACE
`
`A.
`
`Day-Ahead Energy and Operating Reserve Market
`
`The objective of the Day-Ahead Market is to determine the least-cost solution to
`meet the market’s Energy needs and Operating Reserve requirements through centralized
`unit commitment, thereby lowering total production costs for the SPP footprint. In the
`Day-Ahead Market, Market Participants will submit Offers to sell and/or Bids to
`purchase Energy and Offers to sell Operating Reserve. Operating Reserve Products
`include:
`
`
`Exhibit No. SPP-1 at 6.
`22
`
`23
`
`24
`
`Id.
`
`Id.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 8
`
`Regulation-Up,25 Regulation-Down,26 Spinning Reserve,27 and Supplemental Reserve.28
`From the Offers and Bids, SPP will select the most cost-effective mix of Resources to
`meet the Energy and Operating Reserve needs of the market for the Operating Day. The
`Day-Ahead Market co-optimizes Energy and Operating Reserve to meet Energy Bids and
`Operating Reserve requirements and produces Locational Marginal Prices (“LMP”)29 for
`
`Regulation-Up is defined as “[a]n Operating Reserve product procured by the
`25
`Transmission Provider from Resources that increase their energy output in
`response to a Regulation Deployment Instruction from the Transmission
`Provider.” Proposed Tariff at Attachment AE § 1.1, Definitions R. Resources
`providing Regulation-Up must be capable of being deployed through automatic
`generation control equipment to automatically and continuously adjust Resource
`output to balance supply and demand in near Real-Time and must be able to
`deploy the full amount of Regulation-Up cleared within the Regulation Response
`Time, currently set at five minutes.
`
`26
`
`27
`
`28
`
`29
`
`Regulation-Down is defined as “[a]n Operating Reserve product procured by the
`Transmission Provider from Resources that reduce their energy output in response
`to a Regulation Deployment instruction from the Transmission Provider. Id. Like
`Regulation-Up, Resources qualified to provide Regulation-Down must be capable
`of being deployed automatically and continuously through automatic generation
`control and must be able to deploy the full amount of Regulation-Down cleared
`within the Regulation Response Time, currently set at five minutes.
`
`Spinning Reserve is defined as “[t]he portion of Contingency Reserve consisting
`of Resources synchronized to the system and fully available to serve load within
`the Contingency Reserve Deployment Period following a contingency event.” Id.
`§ 1.1, Definitions S. Spinning Reserve is provided by synchronized Resources
`that can supply Contingency Reserve within
`the Contingency Reserve
`Deployment Period (currently set at 10 minutes).
`
`Supplemental Reserve is defined as “[t]he portion of Operating Reserve
`consisting of on-line Resources or off-line Resources capable of being
`synchronized to the system that is fully available to serve load within the
`Contingency Reserve Deployment Period following a contingency event.” Id.
`Like Spinning Reserve, Supplemental Reserve must be able to provide
`Contingency Reserve within the Contingency Reserve Deployment Period
`(currently set at 10 minutes).
`
`SPP calculates LMP in a manner similar to other RTOs. LMP is calculated for
`each Meter Settlement Location based on the SCED and Operating Reserve
`clearing, using the marginal dispatchable Resource’s Offer Curves, Resource
`characteristics, and other data. See id. § 8.3. LMP consists of three components:
`(1) the Marginal Energy Component representing the marginal costs of Energy;
`(2) the Marginal Loss Component consisting of the marginal cost of losses; and
`(continued. . . )
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 9
`
`use in Energy settlement and Market Clearing Prices (“MCP”)30 for use in Operating
`Reserve settlement. The Day-Ahead Market also allows for Virtual Energy Offers and
`Virtual Energy Bids, as well as the ability to schedule Import and Export Interchange
`Transactions. The co-optimization process includes a product substitution logic that will
`allow use of available higher quality Operating Reserve products for lower quality
`Operating Reserve products if more economic to ensure rational Operating Reserve
`product pricing (i.e., Regulation-Up MCP greater than or equal to the Spinning Reserve
`MCP; Spinning Reserve MCP greater than or equal to Supplemental Reserve MCP) and
`the lowest-cost Operating Reserve procurement.
`
`The Day-Ahead Market creates financially-binding obligations. Each Offer and
`Bid that clears the Day-Ahead Market will be required to pay or will be paid the Day-
`Ahead LMP for the Settlement Location for the amount of Offers or Bids cleared, and
`each Market Participant whose Offer or Bid clears the Day-Ahead Market will be
`financially committed to supply or consume electricity the following day in the RTBM.
`Therefore, the Day-Ahead Market serves as a preliminary reliability process for unit
`commitment to ensure sufficient Resources are committed for use in the RTBM and to
`provide price assurance prior to Real-Time.
`
`Market Participants must submit Offers and Bids in the Day-Ahead Market by
`11:00 am on the day before the Operating Day.31 Using a simultaneous co-optimization
`methodology, SPP will commit offered Resources, Import Interchange Transaction
`Offers, and Virtual Energy Offers using SCUC to meet demand Bids, Virtual Energy
`Bids, Export Interchange Transaction Bids, and Operating Reserve requirements on a
`least-cost basis for each hour in the upcoming Operating Day and clear the Day-Ahead
`Market using SCED.32 SPP will communicate the results of the Day-Ahead Market by
`4:00 p.m. on the day prior to the Operating Day.33
`
`
`(. . . continued)
`(3) the Marginal Congestion Component representing the marginal costs of
`congestion. See id. § 8.3.1.
`
`30
`
`31
`
`32
`
`33
`
`MCPs represent the cost of supplying an increment of Operating Reserve
`composed of the marginal Operating Reserve costs and marginal costs associated
`with Operating Reserve scarcity, taking into account lost opportunity costs. See
`id. § 8.3.4.
`
`See id. § 5.1.
`
`See id. § 5.1.2.
`
`See id. § 5.1.3.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 10
`
`The Day-Ahead Market will optimize generation choices for the entire SPP
`footprint and determine which generating units should run the next day for maximum
`cost-effectiveness, based on Resource availability and Offer prices.34 Regional
`commitment of Resources, as opposed to individual commitment as occurs currently, will
`reduce overall costs to the SPP Region, as discussed in more detail in the Testimony of
`Mr. Monroe.35
`
`To ensure sufficient physical Resource capacity to satisfy the Energy and
`Operating Reserve needs of the market, SPP has incorporated a “must-offer” requirement
`into the Day-Ahead Market. As described in more detail below,36 the must-offer
`requirement is limited to Market Participants with load obligations and is sufficiently
`flexible to permit Market Participants to determine which Resources to offer in the Day-
`Ahead Market.
`
`B.
`
`Reliability Unit Commitment (“RUC”) Process
`
`Following completion of the Day-Ahead Market clearing process, SPP will
`engage in the Day-Ahead RUC process. Specifically, one hour after SPP posts the Day-
`Ahead Market Results, SPP will initiate the RUC to assess capacity adequacy for the
`following Operating Day using the SCUC algorithm with the objective of committing
`physical Resources to meet SPP’s load forecast and Operating Reserve requirements.37
`The purpose of the RUC is to ensure that there are sufficient physical Resources
`committed to meet the SPP load forecast and Operating Reserve requirements for the
`following Operating Day and that such Resources are physically deliverable. Unlike the
`Day-Ahead Market, the RUC assesses physical Resources only, rather than physical and
`virtual Offers, and measures demand using forecasts of SPP load and Operating Reserve
`Requirements instead of demand Bids. This ensures that all load (including load not
`participating in the Day-Ahead Market) is considered. Similar to the Day-Ahead Market,
`SPP has incorporated a must-offer requirement in the RUC process. All available
`Resources are required to submit an Offer in the RUC process.38
`
`
`Exhibit No. SPP-3 at 7.
`34
`
`35
`
`36
`
`37
`
`38
`
`Exhibit No. SPP-1 at 7, 18.
`
`See infra Section V.A.
`
`See Proposed Tariff at Attachment AE §§ 5.2, 5.2.2.
`
`See id. § 2.11.2.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 11
`
`Based on the results of the RUC, SPP will update the Current Operating Plan39
`and issue start-up and shut-down orders as needed, committing or decommiting
`Resources in the RUC as needed to address any shortage or surplus of physical capacity
`resulting from the Day-Ahead Market.
`
`SPP’s design adopts the policy that a Resource must be made financially whole if
`it is committed by SPP in any of the markets. If SPP commits a Resource during the
`RUC process and the revenues the Resource receives in the RTBM over the commitment
`period are insufficient to cover its fuel and other variable costs, the Resource will be
`eligible for a make whole payment, as discussed in more detail below.40 Specifically,
`when the Resource’s eligible RTBM Start-Up Offer costs, No-Load Offer costs, Energy
`Offer Curve costs, and Operating Reserve Offer costs associated with actual Energy and
`cleared RTBM Operating Reserve is greater than the Energy and Operating Reserve
`RTBM revenues received during the period that the Resource was committed through the
`RUC, the Resource will be eligible for a make whole payment to cover the difference.41
`
`SPP will also perform Intra-Day RUC at least every four hours, and otherwise as
`needed, to assess capacity adequacy during the Operating Day,42 using a process similar
`to the Day-Ahead RUC. The difference between the two processes is that the Intra-Day
`RUC solves for the remaining hours in the Operating Day as opposed to the entire
`Operating Day that is evaluated in the Day-Ahead RUC process.
`
`C.
`
`Real-Time Balancing Market (“RTBM”)
`
`SPP also proposes to implement the RTBM to centrally dispatch online Resources
`and procure Operating Reserve to balance Real-Time supply with demand and Operating
`Reserve requirements at the lowest total production cost. Similar to SPP’s current EIS
`Market, SPP’s proposed RTBM will evaluate Transmission System limitations and issue
`Dispatch Instructions every five minutes to balance supply and demand in Real-Time.
`
`SPP will utilize SCED to ensure that dispatch results are physically feasible given
`Transmission System limitations, and will co-optimize Energy dispatch and Operating
`Reserve clearing to achieve the lowest possible cost while meeting the market’s Energy
`
`The Current Operating Plan is SPP’s internal hourly Resource commitment
`39
`schedule for the Operating Day resulting from the Day-Ahead Market and Day-
`Ahead RUC process, updated as necessary during the Intra-Day RUC process.
`See id. § 1.1 Definitions C.
`
`40
`
`41
`
`42
`
`See id. § 8.6.5; see also infra Section V.D.
`
`See Proposed Tariff at Attachment AE § 8.6.5.
`
`See id. § 6.1.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 12
`
`and Operating Reserve requirements. Unlike the current EIS Market, RTBM Energy
`settlement will be performed on a five-minute basis using LMP to settle the difference
`between the actual Real-Time meter readings and the amount of Energy Offers and Bids
`cleared in the Day-Ahead Market. Similarly, RTBM Operating Reserve settlement will
`be performed on a five-minute basis using MCP to settle the difference between the
`RTBM cleared Operating Reserve amounts and the amounts of Operating Reserve Offers
`cleared in the Day-Ahead Market.
`
`Utilizing simultaneous co-optimization, SPP’s SCED algorithm will calculate
`Resource Dispatch Instructions and clear Operating Reserve, which include Regulation
`(Up and Down), Spinning Reserve, and Supplemental Reserve, to satisfy SPP’s load
`forecast and Operating Reserve requirements at the lowest cost based upon submitted
`Offers, while respecting Resource operating constraints and Transmission System
`constraints.43 SPP will also execute a look-ahead SCED at least two dispatch intervals
`prior to the RTBM SCED to anticipate the need to adjust Dispatch Instructions for the
`current Dispatch Interval and to determine the need for commitment of Quick-Start
`Resources within the Operating Hour.44
`
`SPP proposes to settle the RTBM on a five-minute basis. While this settlement
`approach is different than some of the other RTO real-time markets, five-minute
`settlement provides several benefits. For instance, five-minute settlement incents the
`submission of ramp capability by Resources, because the capability to move quickly is
`rewarded by an LMP commensurate with the five-minute instructions.45 Unlike an
`hourly LMP settlement process, five-minute settlement recognizes a Resource’s ability to
`move quickly within the hour to balance changes in load.46 Without this pricing feature,
`Resource owners may be disinclined to offer all of their ramp capability, perceiving that
`they are not being fully compensated for the actions required.47 Additionally, the co-
`optimization of Operating Reserve with Energy results in Operating Reserve capacity
`shifting on a five-minute basis. Because this is capacity, and not Energy, meaningful
`integration of these amounts to hourly values is difficult.48 As Mr. Dillon explains, SPP
`
`
`See id. § 6.2.2.
`43
`
`44
`
`45
`
`46
`
`47
`
`48
`
`See id. § 6.2.2(6).
`
`Exhibit No. SPP-3 at 31.
`
`Id.
`
`Id.
`
`Id.
`
`

`

`The Honorable Kimberly D. Bose
`February 29, 2012
`Page 13
`
`chose a settlement interval equal to the co-optimization interval to maintain equity of
`settlement.49
`
`SPP may also utilize manual dispatch to address Emergency Conditions that
`cannot be resolved through SCED.50 Specifically, when an Emergency Condition arises,
`SPP will issue manual Setpoint Instructions that include a Manual Dispatch Instruction
`for the duration of the Emergency Condition, and will endeavor to resolve the issue
`through SCED within one hour.51 Resources that respond to a Manual Dispatch
`Instruction will be compensated at the RTBM LMP unless the Manual Dispatch
`Instruction creates additional costs to the Market Participant beyond the RTBM LMP or
`adversely impacts the Market Participant’s Day-Ahead Market position for Energy or
`Operating Reserve, in which case SPP will provide additional compensation to make the
`Resource whole.52
`
`D.
`
`Procurement of Operating Reserve
`
`As discussed above, SPP’s Integrated Marketplace includes the competitive
`procurement of Operating Reserve. Currently, Regulation Reserve and Contingency
`Reserve are provided or procured by the individual Balancing Authorities within the SPP
`Region. In the Integrated Marketplace, SPP will procure Operating Reserve on a region-
`wide basis from Market Participants offering to sell Operating Reserve (Regulation-Up,
`Regulation-Down, Spinning Reserve, and Supplemental Reserve) in the Day-Ahead
`Market and RTBM to satisfy SPP’s Operating Reserve requirements. SPP’s Integrated
`Marketplace will ensure procurement of sufficient Operating Reserve to satisfy region-
`wide reserve requirements at the lowest possible cost, while also ensuring that Operating
`Reserve will be deliverable to load given Transmission System limitations.
`
`Through its co-optimization logic, SPP will co-optimize Energy dispatch and
`Operating Reserve procurement, resulting in the lowest-cost mix of Resources to clear in
`the Day-Ahead Market and dispatch in the RTBM. Co-optimization of Energy and
`Operating Rese